Fortress set to buy in Dresden

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Fortress, a US private equity house, is close to acquiring 50,000 flats owned by the eastern German city of Dresden for €1.75bn.Kai Schulz, spokesman for the city, said Dresden’s government had accepted Fortress’s bid. He added, however, that the deal still had to be formally approved by the full city council on 9 March.According to German press reports, Fortress managed to outbid Appellas, a Berlin-based investor controlled by US billionaire George Soros, by €50m.Mr Schulz said Dresden’s main motivation for selling the flats was to pay off €700m of debt incurred to fund modernisation of the units.If the deal goes through, it will be Fortress’s latest coup in Germany’s residential property market. Since 2004, when it burst into the market by paying €3.5bn to acquire Gagfah, an owner of flats around Germany, Fortress has accumulated a portfolio of 110,000 units.A classic short-term investor, Fortress does not intend to hold on to the properties for very long but instead offload them as soon as it can realise a decent profit. Indeed, Robert Kauffman, head of Fortress’s business in Europe, has already signalled that his firm might float Gagfah on stock exchanges later this year.But the strategy taken by Fortress as well as its rival, Terra Firma, which is controlled by UK private equity mogul Guy Hands, depends on better fortunes for Germany’s property market. The market has been in the doldrums since 2001 but experts say 2006 will mark the beginning of a sustained recovery.